Writing this blog has taught me a lot about personal finance and investing. This is one of a series of articles where I argue with my former self by disagreeing with one of my previous articles. Unlike politicians, I’m allowed to change my mind as I learn more from my readers and my own research.
I wrote about Warren Buffett’s proposed solution to preventing a repeat of the U.S. housing crisis and in the comments section, I crowed
“I'm proud of the Canadian system and its stricter policies for obtaining a mortgage that has pretty much dampened any housing bubbles that we might have.”
I’m not so sure about this any more. I don’t think we’re headed for a mortgage crisis anywhere close to as bad as what happened in the U.S. a few years ago, but it seems clear now that many Canadians would be in for trouble if interest rates rose by even as little as 2%.
On a $300,000 mortgage amortized over 30 years, 3% interest gives monthly payments of about $1260, but 5% interest leads to $1600 payments. This could easily push some homeowners who are right on the edge into default (or at least force them to sell their homes).
I’m not making any predictions about the extent of the pain we’ll see throughout the economy when interest rates start to rise again, but it won’t be fun for those who are heavily indebted.
On the Positive Side …
Here are a few of my older articles that I still quite like:
Market timing in pictures.
MER: Death by 1000 cuts with pictures!
With some dialogue I show that MERs are the gift that keeps on giving.
A profitable, but potentially very dangerous 6-figure credit card arbitrage scheme.
How lenders juice interest payments by not using real interest rates.
A look at how the steady rise of stock prices gets lost in the noise.
Making large sums of money last requires surprisingly low spending each month.
Improving incentives for real estate agents to better align their interests with the clients’ interests. This one had some good discussion in the comments section.
Lacking a sense of scale can hurt financially.